UPSC Prelims Practice Questions — How India’s life insurance sector funds government expenditure

Q1. The mandatory minimum investment thresholds requiring life insurers to park a defined share of their controlled fund in Central Government and other approved securities are laid down and enforced by which one of the following authorities?

  • A. Reserve Bank of India, as manager of the government's market borrowings
  • B. Insurance Regulatory and Development Authority of India, through its Investment Regulations
  • C. Securities and Exchange Board of India, as the securities-market regulator
  • D. Pension Fund Regulatory and Development Authority, as regulator of long-term funds

Q2. Following the 1956 nationalisation of life insurance, which single entity was granted the exclusive privilege to carry on life insurance business in India?

  • A. General Insurance Corporation of India
  • B. Life Insurance Corporation of India
  • C. Oriental Insurance Company
  • D. Postal Life Insurance

Q3. In the context of the Life Insurance Corporation Act, 1956, the 'nationalisation' of life insurance is best described as which one of the following?

  • A. Compulsory listing of all private life insurers on domestic stock exchanges under state supervision
  • B. Transfer and consolidation of all existing life insurance business into a single state-owned corporation holding an exclusive privilege
  • C. Capping of foreign ownership in life insurers while retaining private Indian management
  • D. Creation of a self-regulatory council of life insurers with no direct government ownership

Q4. With reference to the holding of outstanding Central Government dated securities, consider the following: 1. Life insurers hold close to a quarter of the outstanding stock. 2. Commercial banks are among the institutional holders of the securities. 3. Foreign portfolio investors face a regulatory cap on their holding of central government securities. 4. Provident and pension funds hold a larger share of the stock than commercial banks do. Which of the above is/are correctly identified?

  1. Life insurers hold close to a quarter of the outstanding stock.
  2. Commercial banks are among the institutional holders of the securities.
  3. Foreign portfolio investors face a regulatory cap on their holding of central government securities.
  4. Provident and pension funds hold a larger share of the stock than commercial banks do.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 3 and 4 only
  • D. 1, 2, 3 and 4

Q5. Which institution acts as the debt manager to the Government of India and compiles/monitors the ownership pattern of outstanding Central Government dated securities across holders such as banks, insurers and pension funds?

  • A. Securities and Exchange Board of India
  • B. Reserve Bank of India
  • C. Insurance Regulatory and Development Authority of India
  • D. Clearing Corporation of India Limited

Q6. In its June 2026 relaxation aimed at improving insurers' liquidity management of their government-securities portfolio, how many distinct transaction mechanisms did IRDAI propose to permit for life insurers?

  • A. One
  • B. Two
  • C. Three
  • D. Four

Q7. With reference to how IRDAI's June 2026 investment proposal differs from the earlier position under the existing framework, consider the following statements: 1. Repo transactions in government securities, previously not available to life insurers, are proposed to be permitted. 2. The proposal is framed in the light of changes introduced by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. 3. The proposal abolishes the minimum requirement for insurers to hold government securities in their controlled fund. Which of the statements given above is/are correct?

  1. Repo transactions in government securities, previously not available to life insurers, are proposed to be permitted.
  2. The proposal is framed in the light of changes introduced by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025.
  3. The proposal abolishes the minimum requirement for insurers to hold government securities in their controlled fund.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q8. According to the RBI's Financial Stability Report (June 2026), banks' gross non-performing assets ratio fell to what multi-decadal low?

  • A. 1.5 per cent
  • B. 1.8 per cent
  • C. 2.1 per cent
  • D. 2.4 per cent

Q9. Life insurers' practice of matching their 20–40 year policy liabilities with long-dated government securities — which underpins their role as 'patient capital' — is an application of which principle?

  • A. Asset-liability management
  • B. Mark-to-market accounting
  • C. Fractional-reserve banking
  • D. Liquidity coverage ratio maintenance

Q10. The Insurance Regulatory and Development Authority of India is a statutory body constituted under which one of the following?

  • A. The Insurance Act, 1938
  • B. The Insurance Regulatory and Development Authority Act, 1999
  • C. The Life Insurance Corporation Act, 1956
  • D. The Reserve Bank of India Act, 1934

Q11. With reference to Central Government dated securities (G-Secs), consider the following: 1. They typically carry a coupon that is paid on a half-yearly basis. 2. They are issued by the Reserve Bank of India through auctions on behalf of the Government of India. 3. They mobilise longer-term resources to help finance the fiscal deficit. 4. Treasury Bills, which mature in under one year, are a category of dated securities. Which of the above is/are correctly identified?

  1. They typically carry a coupon that is paid on a half-yearly basis.
  2. They are issued by the Reserve Bank of India through auctions on behalf of the Government of India.
  3. They mobilise longer-term resources to help finance the fiscal deficit.
  4. Treasury Bills, which mature in under one year, are a category of dated securities.
  • A. 1, 2 and 3
  • B. 1 and 4 only
  • C. 2, 3 and 4
  • D. 1, 2, 3 and 4